Diseño y elaboración de los elementos del módulo didáctico

In Essay 1 I conceptually introduced the dynamic socio-cultural model (DSCM) with its dynamic and multi-element features as a generalized perspective on cultural change and creation. The DSCM views an organization as a form of social system with other forms of social systems within and outside it. Social system is defined as a collection of

interacting human beings. An EMNE, for example, is a social system with several smaller social systems within it including divisions, branches, departments, and/or teams. An EMNE is also a part of multiple larger social systems, including its own home country and other countries where it has operations. Thus, the EMNE continuously interacts with not only the physical environment, but also other social systems of various types or sizes (e.g., other firms, segments of consumers, governments, etc.). In each of these social systems reside cultural resources, defined broadly as to include distinctive cultural

elements such as knowledge, values, norms, beliefs, custom, law, language, art, concepts of good and evil, tools, technologies, and artifacts (Japperson & Swidler, 1994).

When an EMNE acquires a target firm in a developed country, the DSCM views such a “marriage” between two firms as a cultural event, in which two social systems, each of which brings its own distinctive cultural resources, are interacting with each other. From the DSCM perspective, any social system must change continuously in order to survive, even without stimuli for change from outside of the social system. Continuous learning is part of the inevitable change in every social system, because humans as an inherent part of the social system must learn to live, and hence not learning is impossible (Habermas, 1979). Specifically, in circumstances involving uncertainty, social systems have to reorganize their rules for dealing with uncertainty to survive (Eder, 1999). Moreover, since most social systems in modern times inherently carry uncertainty in them, interacting individuals within the social systems must then continuously and collectively learn new rules (Beck, 1992; Sabatier & Jenkin-Smith, 1993).

Successful international acquisitions require the so-called post-integration

“double layer acculturation process” (Berkema, Bell, & Pennings, 1996), as both acquirer and target must overcome not only organizational-level cultural differences, but also national cultural differences. Acculturation is defined as change in two cultures induced by diffusion of cultural elements in between the two in both directions (Berry, 1980). In international acquisitions, both the acquirer’s home country and the target’s host country possess distinctive cultural resources. Similarly, both the acquirer and the target as separate social systems also possess their unique firm-specific cultural resources. When an EMNE takes over a target in a developed country, the contacts between EMNE and

the host society, and between the EMNE and acquired target organization, change the social interactions in each of these contacts and bring about uncertainties to them. These uncertainties yield not only risks, but also opportunities for creating new shared cultures between the EMNE and the host country, and between the EMNE and its acquired target, since these risks incentivize the interacting social systems for further collective learning. Thus, the international acquisitions trigger collective learning processes that generate new shared culture and modify cultural resources at organizational and country levels.

From a societal-level learning perspective, the collective learning processes modify existing shared knowledge of the interacting socities, producing novel knowledge in the societies. Eder (1999) argued that there are two types of collective learning process that yield two different types of shared knowledge, namely, substantive learning and social rule learning. Substantive learning leads to the accumulation of different types of substantive knowledge, ranging from simple practical knowledge to advanced scientific knowledge. On the other hand, social rule learning is about collectively learning to create situations in which experience can be preserved and passed over to future members of the society, which is clearly tacit knowledge. It is about collectively learning how to learn, through which interacting individuals collectively learn ways and procedures for

generating new knowledge and integrating this new knowledge into the society’s existing knowledge resource (Eder, 1999).

From an organizational-level learning perspective, the concepts of substantive learning and social rule learning in societal-level learning are parallel to the concepts of exploitation and exploration (March, 1991). As the evolutionary views of organizational forms and technologies suggest, exploitation is essentially the process of selection among

existing forms, routines, or practices, while exploration is the process of generating new variations of alternative practices, both of which are necessary for the organization’s survival (Ashby, 1960; Hannan & Freeman, 1987). Thus, all organizational activities involve some learning. Even in merely replicating past actions, experience is

accumulated and it generates an incremental amount of learning, as demonstrated by the idea behind the “learning curve” (Yelle, 1979). Moreover, learning always involves the twin processes of exploration and exploitation. Exploitation is fundamentally a learning process that refines and extends organization’s existing competencies, technologies and ways of thinking with relatively proximate, predictable and positive economic returns (e.g., refinement, selection, and/or implementation of existing techniques, choice, production methods, efficiency, etc.). Exploration, on the other hand, is a learning process that involves experimentation with new alternatives characterized by relatively uncertain, distant and (often) negative economic returns (e.g., searching for novel ideas, markets, relations, etc.) (March, 1991). To survive and succeed organizations rely on organizational ambidexterity, which is a dynamic capability to simultaneously and synchronously pursue both exploitation and exploration, with the actual composition between the two possibly different across cases and over time (Benner & Tushman, 2003).

Unlike traditional multinational enterprises (MNEs) from developed countries that venture to emerging markets to exploit their distinctive competitive advantages in

technologies, brands and managerial know-how (Hymer, 1960), most EMNEs enter high- income markets without unique initial resources that can be immediately exploited

countries (Zaheer, 1995). While MNE’s direct investment in emerging markets are typically motivated by their drive for market expansion, natural resource outsourcing, and/or cheaper production costs, EMNE’s acquisitions of firms in advanced economies are primarily driven by their search for strategic assets that would give them new competitive advantages (Guillen & Garcia-Canal, 2009) to complement their existing resources and capabilities (Dunning, 1991). Those acquisitions enable EMNE to

immediately strengthen their competitive position in their existing home markets against their local or foreign competitors in those markets through exploitation of complementary and superior technologies, brands, and managerial skills readily available in the acquired firms. Those acquisitions also simultaneously provide the EMNE with the option to explore the target’s high-income home markets by leveraging the experience of the acquired firms for exploitation in the long run after the EMNE acquirer gains more experience in the high-income markets (Meyer, 2015).

From an organizational learning perspective, this “dual path” of concurrently entering into a developed market and expanding existing operations in the developing markets back home and regionally (Guillen & Garcia-Canal, 2009) can be viewed as the EMNE’s strategic maneuver to achieve organizational ambidexterity. This path of expansion facilitates both exploitative and explorative learning processes simultaneously (Puranam & Srikanth, 2007) and provides the EMNE with unique dynamic capability for creating and sustaining organizational ambidexterity (Raisch et al., 2009). Indeed,

through their acquisitions of targets in advanced economies, the EMNEs are able to satisfy both their need for short-term exploitation in their home markets and their need for long term exploration to enhance their competitive advantage in advanced host

markets, as EMNEs gain more operational experience in them (Luo 2002; Meyer, Estrin, Bhaumik, & Peng, 2009; Teece, 2014).

Furthermore, since all organizational activities always involve learning, and all learning is simultaneously composed of certain amount of exploitation and exploration processes (Gupta, Smith, & Shalley, 2006), EMNE’s “South-North” investment in advanced economies is more likely to be exploration-dominant, while its “South-South” investment at home or other developing markets is more likely to be exploitation- dominant. Thus, in this dual “South-North” and “South-South” investment context, choosing low-control mode versus high-control mode in its acquisition of targets in advanced economies may be a strategic decision for an EMNE as it may influence EMNE’s balancing of exploitation and exploration learning processes in its whole global operation. Indeed, the choice for low-control versus high-control acquisition is likely to affect the EMNE acquirer’s process of creating optimal organizational ambidexterity and hence influence the EMNE acquirer’s organizational performance.

Low-control versus high-control acquisitions

For an acquiring EMNE, acquisition control mode is associated with certain costs and benefits. When the expected net benefits from a high-control acquisition exceed the expected net benefits from a low-control acquisition, the EMNE acquirer will choose a high-control acquisition. Conversely, the EMNE acquirer will choose a low-control acquisition when the expected net benefits of doing so surpass the expected net benefits from a high-control acquisition. It comes as no surprise that a high-control acquisition is primarily associated with control benefits. A controlling majority interest in an acquired

target enables the EMNE to fully integrate the target into the EMNE’s larger parent organization (Puranam, Singh, & Chauduri, 2009), allowing the combining of common procedures, common goals and common governance between the acquirer and target, which creates value by generating efficiency in the overhead costs (Hapeslagh & Jemison, 1991). A fully integrated structure can also provide a better coordination between the target and the parent company (Kale & Puranam, 2004) and facilitate more effective transfer of technologies and capabilities from the acquired target, which are often tacit and socially embedded (Ranft & Lord, 2002). Conversely, the low-control acquisition traditionally has been associated with several disadvantages for the acquirer, which include limited or no voting power and less benefit from growth in the acquired target firm.

There are, however, several benefits associated with low-control acquisitions. First, from a financial theory perspective, the low-control mode is far less exposed to business risks, and when the target is private, the acquirer often has the option to

purchase equity from major interests before it is offered to other parties. Second, from a real-option theory perspective, a low-control acquisition can provide a valuable “stepping stone” before the EMNE fully engages operationally in the advanced host market,

generating a higher real option value. Entering unfamiliar high-income markets with relatively more sophisticated customers poses uncertainties for the EMNE, in which having a non-controlling minority interest in the target has lower opportunity costs than having a controlling majority interest, because the level of equity ownership in the target is positively related to the EMNE acquirer’s opportunity costs in terms of foregone real option value. Thus, a minority interest in the target provides the EMNE acquirer with the

future right (but without the obligation) to increase its level of equity ownership in the target after it is able to offset its unfamiliarity with the target organization the host country (Folta & Miller, 2002). Furthermore, from a transaction cost economics perspective, while a low-control acquisition may incur higher governance costs due to post-acquisition preservation of a structurally separate target organization, the process of deal completion in low-control acquisitions may be relatively faster than in high-control acquisitions, providing speedy access to the target’s technologies, capabilities and home market (Jacobsen & Meyer, 2008; Williamson, 1975). Moreover, from an institutional theory perspective, having a separate and autonomous subsidiary operation may generate higher legitimacy for the EMNE, as they start operating in developed countries (Crystal, 2003).

In addition to the aforementioned advantages, there are specific learning-related benefits associated with a low-control acquisition. A low-control acquisition leads to operational, structural and administrative autonomy of the target firm. Thus, the collective learning process to achieve post-acquisition synergies is now to be

implemented through partnership-like relationship (Zheng, Wei, Zhang, & Yang, 2016) by aligning selective potential major areas rather than all aspects of businesses (Cogman & Tan, 2010). From this standpoint, the acquirer and the target are treated more equally in low-control acquisitions than in full takeover cases where the acquirers usually have the upper hand. This in turn is likely to induce more cooperative attitudes from the target firms in the post-acquisition collective learning process (Madhok & Keyhani, 2012), easing the process of knowledge transfer and new shared knowledge creation.

control acquisitions because of lower agency costs (Grossman & Hart, 1986). For example, in low-control acquisitions, the original target shareholders still partially retain their rights of the target’s future gains, preserving their motivation to cooperate with the acquirer in the collective learning process to make the new relationship a success (Kale & Puranam, 2004). Moreover, the top management team of a target firm is more likely to stay and keep its autonomy after a low-control acquisition, providing them with more incentive to be actively engaged in a collective learning process with the acquirer’s top management team (Zheng et al., 2016). Similarly, target firms’ employees are likely to have higher post-deal motivation in low-control acquisitions than in high-control acquisitions, since they will have better post-acquisition job security and stability (Kale & Puranam, 2004). Furthermore, a low-control acquisition implies less disruption from the limited and less complex integration, and thus is likely to limit target employees’ dissatisfaction and maintain their motivation to engage in a collective learning process in post-deal organizational arrangement with the acquirer’s organization (Zheng et al., 2016). Furthermore, from a societal learning perspective, the autonomy of the target firm provided in low-control acquisitions may minimize the negative effect of cultural

differences between the acquirer’s home country and the host country (Very, Lubatkin, Calory, & Veiga, 1997), while still help the acquirer to maximize learning benefits from such cultural differences through access to a new source of value creation (Stahl,

Bjorkman, & Vaara, 2004) such as the host country’s novel and diverse cultural

resources, which can be combined with the acquirer’s resources and capabilities to create new competitive advantages (Stahl & Voigt, 2005).

In the next section, using the DCSM and organizational learning perspective, I examine the post-acquisition performance of the EMNE acquirers. I further look into the effect of low-control versus high-control acquisitions on the EMNE acquirer’s

performance. I then consider several related determinants that influence an EMNE to choose a low-control acquisition or a high-control acquisition. I specifically theorize on the effects of the acquirer’s country of origin and target industry. Finally, I investigate the performance implication for the EMNE acquirer when it does not choose the optimal control mode, as prescribed by the hypothesized theories.

Post-acquisition EMNE acquirer’s performance

In EMNE’s acquisitions of firms in developed economies, the acquirer’s shareholders are likely to enjoy a positive return after the acquisition. From a DSCM perspective,

collective learning between acquirers and their acquired target firms generates new shared cultural resources and expands the number of repertoires and routines available to the acquirers. In acquisitions with a high degree of complementarity between the

acquirer’s resources and the target firm’s resources, the acquirers are expected to

generate synergistic benefits. Value creation in acquisitions is positively correlated with future synergistic benefits (Ning, Kuo, Strange, & Wang, 2014). Gubbi et al. argued that, regardless of target country destination, EMNE’s international acquisitions are expected to generate synergistic benefits for the acquirers because they allow them to transfer critical resources and capabilities, overcome “latecomer” disadvantages, internationalize faster, and recombine their distinctive local advantages with resources and capabilities of the acquired targets (2010).

In the “South-North” EMNE’s acquisition context, there are additional advantages that may lead to even more synergistic benefits and hence enhanced value creation for the acquirers. From an organizational learning perspective, EMNE’s acquisitions of firms in developed economies provide the EMNE with a unique organizational ambidexterity that allows them to concurrently enter high-income markets and expand their operation in home markets as well as other emerging markets (Guillen & Garcia-Canal, 2009). This dynamic capability has a strategic value, because it allows the EMNE to

contemporaneously meet their need for short-term exploitation in their home and other emerging markets and long term exploration to enhance their competitive advantage in the advanced host market (Luo 2002; Meyer, Estrin, Bhaumik, & Peng, 2009; Teece, 2014). Based on other theoretical lenses, some empirical studies have also confirmed that EMNE enjoy, on average, positive returns in their acquisitions of firms in developed economies (e.g., Bhagat, Malhotra & Zhu, 2011 Gubbi et al., 2010). I thus posit

Hypothesis 1: In EMNE’s acquisitions of firms in developed economies, all else being equal, the mean of post-acquisition EMNE acquirer’s return is positive.

Drivers of control choice in acquisitions

Acquirer’s home country economic characteristics

The EMNE acquirer’s country of origin may affect the EMNE’s choice of control mode in its acquisition of firms in developed markets. The idea builds on the “country of origin effect” research that suggests there are profile similarities among multinational firms from a particular country that are unequivocal to those of multinational firms from

decision making and ultimately performance (Lahiri, Elango, & Kundu, 2014; Porter, 1990; Sethi & Elango, 2000). This essay deals with acquirers that originate from

emerging economies. The emerging economies are developing countries characterized by relatively rapid Gross National Income (GNI) growth, large domestic markets, pro- market domestic reforms, integration with the global economy through rapid increase in international trade and foreign direct investment, expanding middle classes, improved living standards, political stability, and increased cooperation with multilateral

institutions (Kvint, 2009; Wright, Filatochev, Hoskisson, & Peng, 2005). Based on the World Bank classification, all of the emerging economies are part of the middle-income group of countries whose per capita Gross National Income (GNI) in 2016 was between $1,006 and $12,236 (World Bank, 2017).

The middle-income group represents the largest number and most diverse group of countries, mostly located in Asia and Latin America. Countries in this group are experiencing or struggling to avoid the so-called “middle-income growth trap”

(Economist, 2012; Time, 2013). It is a phenomenon where a middle-income country is caught in a situation characterized by a sharp deceleration in growth and in the pace of productivity increases, having difficulty in making an additional leap to become high- income economies. During a typical initial phase of economic development, firms from low-income countries usually can compete in international markets by producing labor- intensive, low-cost products using technologies imported from abroad. These firms can achieve large productivity gains initially through a reallocation of labor from low- productivity agricultural sectors to high-productivity manufacturing sectors. However, once the low-income countries reach a middle-income status, the pool of labor surplus in

the rural areas shrinks and real wages begin to rise, eroding the export competitiveness of the countries’ firms. When the trap is in full effect, productivity growth and technology catch-up are exhausted, making the economy stuck in the middle-income-and-low-growth status, as foreign investors leave and relocate to other developing countries with lower wages (Agenor, Canuto, & Jelenic, 2012).

Nevertheless, treating emerging economies as a homogenous entity is a fallacy. Accordingly, further dissection of the emerging economies is necessary to better understand country-level characteristics that influences the behavior of EMNEs from each of these countries. Figure 5 shows that Brazil, South Africa, Russia and Indonesia have had large shares of metal and other mineral exports in their total exports, being the world’s major producers of mineral and other basic commodities, while China and India